The trade war

Written By: - Date published: 1:56 pm, July 9th, 2018 - 27 comments
Categories: China, Donald Trump, Free Trade, Globalisation, International, trade, uncategorized, us politics - Tags:

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The speed of the growing trade war between the United States and China will hit New Zealand.

Our long term diplomatic arc, such that it is, was to follow a modernist impulse set after World War Two: that economic growth and democracy matched deep human impulses for freedom and prosperity together.

China has never assented to that. A Princeton Professor Aaron Friedberg recently described the conflict like this:

America’s post-Cold War strategy for dealing with China was rooted in prevailing liberal ideas about the linkages between trade, economic growth and democracy, and a faith in the presumed universality and irresistable power of the human desire for freedom. The strategy pursued by China’s leaders, on the other hand, was, and still is, motivated first and foremost by their commitment to preserving the Chinese Communist Party’s monopoly on domestic political power.

To be a little fairer, China had its own modernist impulse, but it remains a propulsive nationalist developmental drive not causally linked to human rights or democratisation.

America’s goal was to avoid conflict, get China to reform and open its economy, and assimilate it into a system built around open markets and liberal values. The problem was that China never really accepted this system. China’s goal has been to protect its long term strategy of modernising its industry and society, building territorial influence, and securing its future through trade and resource control – and it will keep doing this irrespective of Donald Trump or his trade representatives.

No matter what the United States President seeks to do in trade, Xi Jinping knows he will outlast him, and he will continue to implement his resolute and highly historically conscious direction for China:

History has proven and will continue to prove that only socialism can save China and only by adhering to and developing socialism with Chinese characteristics will we realize the great rejuvenation of the Chinese nation. Both China and the world are in the midst of profound and complex changes. China is still in an important period of strategic opportunity for development. We have a favorable development environment that was unimaginable before, but we still face unprecedented difficulties and challenges. At the 19th National Congress, the CPC has drawn up a splendid blueprint for securing a decisive victory in building a moderately prosperous society in all respects, embarking on a new journey to fully build a modern socialist country and realizing the great rejuvenation of the Chinese nation. It will be another Long March

 

Xi Jinping is re-energising that highly conscious historical materialist arc with an impressively coordinated telic drive. Which puts this trade war in perspective somewhat, and that is reflected in China’s consistently diplomatic responses to it.

Now let’s compare.

China’s leadership can see the sway that U.S. listed business leadership has on government direction in matters other than trade: whenever Trump or his officials talk tough on China, the U.S. stock markets fall. Whenever there is more conciliatory talk about negotiating an agreement, markets rise. This is an indication that major companies have a lot at stake in resolving this dispute, preferably with some better market access, rather than having a trade war. There’s no real discussion of anything except interests now. So at the same time as the United States gives up on its own modernist project and retreats, China remains exceedingly resolute in its own. Back in the day, President Kennedy’s economic rhetoric had real similarities to Xi Jinping’s.

 

Suffice to say, not anymore!

So that response to the modern purpose of China is what is represented in this U.S.– China trade war.

New Zealand is at risk to be sure, but could do well out of this, largely because of how Australia is positioned. The U.S. and Australia are our two top foreign direct investors by country.

 

On the other hand, New Zealand capital mostly flows out to Australia and the U.S. and less so to China. It’s handy for New Zealand that the U.S. Trade Representative has flagged new restrictions on Chinese investment into the U.S. to contain “China’s stated intention of seizing economic leadership in advanced technology as set forth in its industrial plans, such as Made In China 2025.”

 

There is no way in hell China is giving up the Made In China 2025 strategy. It will drive all its component suppliers, including us.

 

The trade war between the U.S. and China could mean that world trade falls fast. That would in turn knock on against us as a country fully dependent upon international trade.

Yet it could also mean that really savvy investors reprioritise their sights away from housing and towards higher value ventures in China.

 

With the U.S. shutting down Chinese-based commercial cooperation in i.t. and tech-based companies, China’s Made in China 2025 drivers will need to search elsewhere for partnerships, including here. That just might mean more investment spillovers flowing between China, Australia, and New Zealand in areas that are expanding here such as game production, film production, and other i.t.-heavy ventures. Deeper investment ties between China and New Zealand will make an increasingly negative trade balance with New Zealand more acceptable to China over the long term. China is also well poised to assist in New Zealand’s locally strained ability to build the infrastructure this government has planned.

This opportunity also aligns with New Zealand government sending ever-stronger market signals limiting foreign investment into existing houses, and in general making real estate less attractive to buy: if you are going to invest here it needs to be in businesses that need capital to increase innovation, productivity, and foreign market access. Much of the task for making the most of this will fall to MFAT and NZTE.

Overall we are in the presence of a paradox. It’s not the same as the U.K. joining the E.U. in the 1970, or leaving in the 2010s. It’s not the same moment as C.E.R’s formation. Because what in ordinary times used to be New Zealand’s vulnerabilities may instead prove its strategic strengths in the context of a trade tug-of-war between the U.S. and China.

That’s a long, long way from an idealist modernist impulse, but it’s a likely route for a little country like us.

27 comments on “The trade war”

  1. McFlock 1

    May we live in interesting times…

    We might prosper, but similarly we might be swatted absentindedly by either giant in the midst of the battle. With a third contender being Europe.

    Head down, stay in the trenches, hopefully you’ll be right…

    • Bill 1.1

      Or then again, maybe simply two cabs at a rank, one driven by an inconsistent and incoherent loon exhibiting signs of what might be a death wish…

      I say we opt for the other cab.

      • McFlock 1.1.1

        Assuming the loon won’t be ramming the cab we’re in because he thinks we should have used his cab instead, I still wouldn’t want to share the road with that guy.

        Might be better to walk, or wait for a bus.

  2. DH 2

    I find myself unconcerned about the trade side of it but I do fear it will lead to more frenzied nationalist rhetoric that could be the final trigger for a war in the South China Sea and perhaps a Chinese invasion of Taiwan. If the US persevere with it I think much will depend on how the Chinese Government frames this to its citizenry.

  3. Paul Campbell 3

    I design electronics here in NZ, build them in China, and ship them around the world, the profits come back to NZ.

    This is going to be a giant pain, my US customers are likely going to have to pay 25% more, and at this point I have no idea how. Luckily most of my customers are not in the US.

    So, yes it will affect NZ, I will likely get fewer sales, and fewer profits will find their way into our economy.

    On the other hand it’s an insane thing to do, China has a fifth of the world’s population and a fifth of the world’s smart people, cutting them off from western technology is just going to force them to be self-sufficient, they already know how to make chips well, and how to make them cheaper, forcing them to make all the stuff that they currently buy from the US will not end well .. for the US … Trump’s just flailing about, he’s a real estate developer who knows nothing about manufacturing

    • Ad 3.1

      How will you seek to alter your market positioning into Asian markets as a result?

      • Paul Campbell 3.1.1

        Probably nothing, I sell everywhere in the world, I’ve shipped to Russia, France and Canada today, but I don;t actually sell much to Asia

        BTW building in China vs. building in NZ is kind of a wash for me, I do do some manufacturing here – the killer is shipping – a small package world wide from China is $1, from Dunedin it’s $25

    • DH 3.2

      No offence Paul but it could just be your business is too small for them to be bothered stealing the IP and making it themselves.

      It’s the big players who are antsy over it….

      https://www.theregister.co.uk/2018/06/26/dram_technology_thievery_by_taiwanese_tech_co/

      • Ad 3.2.1

        Have you seen the security features around Weta Workshop and the other film studios in Wellington?

        Weta itself are about the embark on a really large Chinese science fiction film – led by a Chinese company.

        No one produces what they do to their quality.

      • What I build is open source – have at it!

        However my stuff is built and crypto signed several ways, each one unique so I can pretty easily detect fakes – the real goal here though is to detect nation-state actors messing with the hardware.

        Remember that how to make DRAMs is well known, you can even buy them and pull them apart legally, I’m sure everyone does it, back when I was a chip designer in Silicon Valley I once walked into the board room of a small company – they had a photomicrograph of IBM’s VGA chip covering their board room table and a team of uni kids on holiday matching standard cells to what was there to extract a circuit diagram to see how it really works so they could build a work-alike (I was there because they were helping build one of my unrelated designs).

        What you can’t do is:
        – exactly copy a mask (essentially reproduce a chip photographically)
        – use something that has been patented

        and both of those things are public information.

        So in reality it’s not chip designs that are really trade secrets, it’s the cost of reproduction that’s the limiting thing (that VGA chip was really pretty primitive, I’ve designed one from scratch in a couple of months) – what are trade secrets are the process info – the exact tweeks, how long you spend using each reagent, how you make the masks etc etc – more how you make a factory than how you make a particular chip

        • Paul Campbell 3.2.2.1

          The real trick is treat China as a customer and sell stuff there – looks like AMD’s working on that:

          https://www.tomshardware.com/news/china-zen-x86-processor-dryhana,37417.html

          remember that it’s not illegal to make an x86 clone, provided you avoid the various patents (I even have patents on ways to make x86 clones, and most of those are about to expire).

          Provided that is you do all the design from scratch – what AMD is doing above is licensing their design to a Chinese company so they don’t have to do that – it’s probably a smart move, China’s probably the world’s largest growing market at the moment, the US is crazy working to cut itself off from it

          • DH 3.2.2.1.1

            The last thing they want is to licence their designs, that’s a big part of what the whole dispute is about.

            The US have put out quite a comprehensive report on what they see as China’s unfair trade practices. It’s a long one, and perhaps slightly self-serving, but still worth reading to get some background on the issue.

            https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF

            • Paul Campbell 3.2.2.1.1.1

              But licensing their designs (for $300m plus stock in the fab companies) is exactly what AMD is doing here – they’re going to own that market – because in the process they’ve likely opened up the secure boot stuff so that the Chinese can see under the hood and see if there are any back doors – Intel wont do that and AMD’s going to own that market which is ~1/5 of the world – it’s a really smart move – I look forward to buying cheap laptops in Shenzhen soon (laptops are one thing that aren’t cheaper in China)

              (I mentioned process technology as being the really secret stuff above, none of that is included here)

              • DH

                Maybe it’s a good move by AMD, and maybe AMD will find themselves squeezed out of the market by unfair trade practices.

                Many business have already gone down the AMD route and their experiences are one of the reasons they’re having a trade dispute.

                And really, why should they have to licence their designs? There’s no commercial or trade justification for it, that’s strictly a Chinese Government mandate and why are they demanding it?

                • Paul Campbell

                  I don’t think you understand, they’ve CHOSEN to license their designs, they can’t build the chips without the designs … for $300m plus shares of the JV – this is pure capitalism – sure they could have chosen not to license their designs, but they wouldn’t have gotten the $300m or insider access to the Chinese market

                  • DH

                    I think I do understand Paul, business media has been reporting on these joint ventures for the last twenty odd years.

                    I admire your confidence but think it’s misplaced and not grounded in reality. Recent history is littered with brash westerners claiming they’d ‘win’ the Chinese market. They’ve all been chewed up and spat out, even Apple has a shrinking market share.

                    Our own Fonterra is a prime example of western arrogance. Look at the mess they’ve made of winning the Chinese market.

                    • Paul Campbell

                      iPhones are so popular in China right now I suspect the only reason they could have a ‘shrinking market share’ would be because the market is growing so fast – and because China excels at recycling and repairing phones that we in the west throw away – last week I walked through an entire city block in Shenzhen dedicated to turning junk western iPhones (and other high value phones like Samsungs) into working devices (at one end they take in old devices, break them down into chips, build them back onto boards, at the other end are retail stores)

                      BTW you should realise that China doesn’t have to play with IP the way that the west does – just because the US passes a law China doesn’t have to apply it in China – (or NZ for that matter, thank god we didn’t get the US’s TPPA Disney IP laws foisted on us). Bunnie Huang has a great article on the cultural differences:

                      https://www.linkedin.com/pulse/i-broke-my-phones-screen-awesome-bunnie-huang/

                    • DH

                      Certainly there’s much to admire about China but that’s not what this is about. The trade dispute is primarily over the Chinese Government deliberately favouring its own local industry at the expense of foreign competitors.

                      The debate would then come down to whether that’s true and if so whether it’s reasonable or justified. After the last few decades of foreign investment in China there’s now quite a substantial body of evidence supporting the argument that China is indeed (unfairly) subsidising, supporting and protecting its own industry to the detriment of other nations.

                    • Paul Campbell

                      Honestly it’s not, it’s all Trump blundering around pretending he knows what he’s doing – he put a 25% tax on electronic components, but not on assembled devices (assembled with those same components) – something guaranteed to push more of the US’s electronics industry offshore – he’s a realtor, he doesn’t understand manufacturing

  4. Sanctuary 4

    I wouldn’t necessarily assume a trade war will end badly for the United States. The USA is the world richest country and it spans an entire continent. Depending on how you measure it, only about 10-11% of American GDP is dependent on foreign trade – the rest is simply supplying it’s own internal market of rich consumers. Import substitution would be a bit unsettling, but not a calamity.

    For China, with it’s much lower GDP per head, trade represents 38-40% of all GDP activity and a trade war will stall their economy big time – which spells trouble for the Xi Jinping and his buddies in the CCP because constant economic expansion is how they keep the lid on domestic dissent. The other option to growth is to focus on a foreign enemy and start a war…

    Also, the United States could cause such a huge economic hit on China that the Chinese decide to seek resources and markets by force in the same way the Japanese empire saw US trade sanctions on them in the 1930s and 40s as necessitating war.

  5. SPC 5

    It’s not only China that is waiting out the Trump presidency.

    Trump’s real policy is economic isolationism/permanent tariff barriers. It is hostile to the WTO (and the UN). If it becomes American policy (beyond his term in office) our interests no longer converge.

    The USA is for now hostile to the international regime, and that when combined with its occasional resort to assert its will by force makes it a threat to peace. The USA is becoming what it claims others were/are (and yeah it has been a threat to peace from time to time, for other reasons, in the past).

  6. adam 6

    These guys have some interesting videos on China and it’s housing market. I’m using this link not the link to the video – to early in your post for a video link.

    https://www.youtube.com/channel/UCwNPa8fSXzzAZuT9859GVhg?&ab_channel=ADVChina

    The 2 videos I’d suggest are – Ghost cities inside the chinese housing bubble, and the most recent one – Are all chinese building really falling down.

    So I’m not so sure China is in a good way, on the surface it looks fine, but underneath some really scary stuff happening. Like rapidly rising unemployment and investments internally drying up.

    On good news front, strike action, and unionisation are both up in the South of China.

  7. barry 7

    What a load of drivel.

    China is committed to international trade, and abuses the rules about as much as anybody else. This is about US failure to spread to gains of international trade fairly and the losers blaming trade instead of their politicians for the result.

    It has nothing to do with liberal ideals or democracy. All leaders know that their own wellbeing is dependent on the people feeling better off.

    The trade war will open up opportunities for NZ, but will overall be bad for us. The worst thing we can do as a nation is to take sides.

  8. Timeforacupoftea 8

    Our Green Party will be dancing again in the streets thanking Trump for the slow down in trade and use of resources which will cause the earth to cool quickly.

    We are all saved !
    Better buy a pushbike tomorrow.

  9. Incognito 9

    War is the continuation of politics by other means and similarly a trade war is the continuation of trade by other means. The little people always lose even when they think they’re winning or have won. The powers that be will always endeavour to let the people believe they’ re on the path to victory, to a brighter future, that there’s light at the end of the tunnel and there’s always hope, the last and in fact only vestige of the desperately powerless. I’m one of the little people and I’ve had a guts full and I don’t think I’m alone.

  10. Ken 10

    The POTUS will live out his days in the lap of luxury no-matter what.
    Of that we can be certain.
    If China is clever enough to attack his voter base – as they have been so-far, the casualties will be the people who voted this horror in.
    That’s how it should be.

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